Consumption may see profit taking, given high valuations: Vinit Bolinjkar

IT and pharma along with a few commodities should be the way forward for trading, says Vinit Bolinjkar, head, Research, Ventura Securities. It's safe to be in pockets that are defensive, he told ETNow during an interaction.

Edited excerpts:


You are liking pharma, select commodity names and IT at this point. These are some names where we have seen a lot of volatility in some individual stocks. Tell us what is making you view these sectors as a safety bet?


We have seen earnings downgrades come in from all brokerages and we have this conflagration which is building up with our neighbour. There is a talk of limited engagement on the war side. If that were to materialise, stocks would take a hit because consumption would suffer initially.

Valuations that are extremely rich will come off and if you notice, the Nifty has broken below certain levels from where we have seen selloff over the last few days. Keeping this in mind, I believe that you need to be in pockets which are defensive. We believe that IT, pharma which have got large export business along with a few commodities should be the way forward if you want to trade the markets currently.

One of the sectors we actually like is going to be the CGD (city gas distribution) business which has got very strong revenue visibility, going into the next few years.

What are you making of the Q3 earning season? Also, you mentioned a couple of your view points about valuations? Which are the pockets which you still think are highly valued despite the massive consolidation the markets have been witnessing?

Stocks have held out in spite of a huge massacre in earnings. There could be some profit taking in the consumption theme, given that the valuations are extremely stretched out there. We believe that they could come in for some kind of profit booking out there.

Gujarat Gas and Petronet LNG are your top picks within the gas space. What are the triggers, what are the fundamentals you think are likely to move these stocks higher going forward?

The CGD space is going to see some kind of mini disruption. The launch of EVs in pockets of Delhi and Mumbai is going to lead to slight toning down of CNG volumes for both MGL and IGL. This could lead to reduction in Ebitda per SCM which are at extremely high levels.

Gujarat, which does not have too much of local transport on CNG, is expected to gain because CNG is only 20 per cent of its top line compared to 75 per cent for IGL and over 80 per cent for MGL. If you have seen the recent double digit growth in volumes, that has come with expansion in Ebitda per SCM.

We are expecting EPS to go to around Rs 11 in the next couple of years, which is nearly double from here. Even from an intrinsic value perspective, this stock is really cheap and we expect that it could give about 80-90 per cent gains from the current levels over the next 2-3 years.

With Petronet LNG, what we like is that similar to Gujarat Gas for industry, we will need to import LNG. Its existing port is undertaking an expansion of 5 million tonnes and Kochi-Mangalore pipeline is very close to completion.

Volumes are going to go up and the beauty of all this is that it is happening without raising any significant debt. Internal resources are being used. The return ratios are going to be high and we also believe that this stock is extremely undervalued compared to its intrinsic worth and hence, we have a buy on this stock.